Is Elon Musk’s Model 3 Production Plan Too Ambitious?

Elon Musk, Silicon Valley’s automotive visionary, loves to wow the world with grandiose visions that serve primarily to reinforce his position at the top of the list of tech titans. That said, at some point we suspect his shareholders will actually expect him to work towards his ‘visions’ rather than simply talk about them.

And while one can never be sure just how many chances investors in this frothy market will allow Musk before turning on him and his aggressively priced stock, it appears as though he isn’t doing himself any favors with his recent Model 3 production guidance. As Bloomberg pointed out this morning, Musk is guiding the market to production volumes of 10,000 Model 3’s per week by 2018, or roughly 5x his current volumes for the Model S and Model X, combined.

First, Musk said the company is placing orders with suppliers for “1,000 cars a week in July, 2,000 a week in August, and 4,000 a week in September.” Tesla then plans to increase production to 5,000 cars a week by the end of the year, and 10,000 a week by the end of 2018. For context, the company is currently able to make about 2,000 Model S and Model X cars a week.

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And while it’s certainly reasonable to assume that a lower-priced Tesla will have more of a mass market appeal than previous, more expensive models, it just might be a stretch to assume the new car will out sell the BMW 3 Series and Mercedes C Class, combined, in its first year of production.

For Musk to hit all of his targets, Tesla would need to build about 430,000 Model 3s by the end of next year. That’s more than all of the all-electric cars sold planet-wide last year. The rollout will begin in California and move east, focusing on U.S. reservation holders. Even if half of the Model 3 inventory is shipped to other countries, U.S. sales under Musk’s targets would outpace the BMW 3 Series and the Mercedes C class—combined.

Another forecast Musk reiterated is that Tesla thinks it can build 500,000 total cars next year while Model S and Model X growth would continue, but at a slowing rate. The chart below, as far as we can figure, is the ramp that Tesla is forecasting.

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To sell that many $35,000 sedans in the U.S. “would be absolutely unprecedented based on what we know about car markets today and how people spend their dollars,” said Salim Morsy, electric car analyst at Bloomberg New Energy Finance. “It could happen. I’m pretty sure it won’t.” Related: OPEC Compliance Nears 100% On Libyan, Nigerian Outages

Virtually every Wall Street analyst agrees. Even the most bullish among them don’t think Tesla can sell half a million electric cars next year, and Musk has a long history of never setting a deadline that he’s likely to keep.

Meanwhile, as we pointed out earlier this month (see “Tesla Admits It Still Hasn’t Completed A Model 3 Beta Prototype“), Car and Driver found an interesting “risk factor” in Tesla’s 10-K which basically cautioned that, despite aggressive production guidance slated to begin just 6 months from now, the company hasn’t even developed a Model 3 “beta prototype”….

“We expect that the next performance milestone to be achieved will be the successful completion of the Model 3 Beta Prototype, which would be achieved upon the determination by our Board of Directors that an eligible prototype has been completed. Candidates for such prototype are among the vehicles that we are currently building as part of our ongoing testing of our Model 3 vehicle design and manufacturing processes.”

In other words, Wahlman points out, Tesla has not “completed” a Model 3 “beta prototype” as of, well, either of these two dates: December 31, 2016 (the period that the SEC filing covers), or March 1, 2017 (the date on which the document was filed). Pick your poison.

Tesla is redefining how cars are developed, built, sold, and updated. Some of the tricks Musk plans to speed up the launch can only be done once. Others may transform the automotive industry much like Telsa’s over-the-air software updates. Here’s what we know:

Tesla is skipping “beta”—sort of. On Friday, Musk fired off a barrage of 50 messages on Twitter while on a flight to Cape Canaveral, Florida. Among them was a six second clip, the first glimpse of what he calls a “release candidate” Model 3. The term is more typically used in the software industry, referring to a final version that’s almost ready for public release.

Musk is condensing the typical timeline for a car release. A traditional auto manufacturer spends about six months testing a beta cars prior to a rollout. Musk seems to have skipped a step, and is building test vehicles using the same equipment line that will feed mass production. If that’s the case—and this truly is a “release candidate”—then it implies that production is on track. The car looks very much like the vehicles Musk showed a year ago, and that fidelity to the original prototype will have helped keep engineers on schedule.

Of course, if beta testing phases are so irrelevant, one has to wonder why the major OEMs spend 1-2 years, and millions of dollars, testing their vehicles before mass release…we’re sure it’s all just bureaucratic waste…

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